Dollar downtrend?

Currencyland has risen from its long slumber today as the dollar has gotten creamed against most of its G10 counterparts. While most currency traders have probably given up for the year, next week sees a new fiscal year for many hedge funds and investment banks. As such, the emergence of a dollar trend in late November would be quite handy, and provide these folks with a tailwind for 2007.

Is this the real deal? At this point, it is too early to say. Most major currencies remain within (albeit at the edge of) established ranges, and most of the private sector volume has come from CTAs and trend followers, a client base that has demonstrated a stunning lack of profitability over the past few years.

Macro Man is therefore reluctant to hop on board the dollar down train in any meaningful way at current levels, and indeed is currently legged short EUR/USD.

Nevertheless, it would be nice to have at least something on. Macro Man therefore spends a bit of premium to buy 20 million EUR worth of 1.32 euro calls expiring 22 January for 0.42% of face, or 84,000 euros.

It is tempting to sell some USD/CAD, but the poor performance of oil after the lofty inventory data has scared him off that one for the time being.